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Here’s our monthly article on legal developments in the auto sales, finance and leasing world. This month, the action involves the Bureau of Consumer Financial Protection and the Federal Trade Commission. As usual, this month’s article features our “Case of the Month.”

Note that this column does not offer legal advice. Always check with your lawyer to learn how what we report might apply to you, or if you have questions.

Note the Federal Trade Commission enforcement action described below dealing with mailing fake recall notices. The FTC settlements include both the dealer and the promotions company. The lesson for dealers from this action is clear – vendors can get you into trouble. Before you sign up for that next ad campaign, do your due diligence and have your lawyer review the contract. Hint – the time for those actions is BEFORE you sign up. You should also have a vendor management process in place to ensure the activities of your vendors on your behalf comply with the law.

Federal Developments

Fake News! On October 10, the FTC announced that a group of car dealerships and their president and vice president have settled allegations that they mailed more than 21,000 fake “urgent recall” notices to consumers to lure them to visit dealerships. The FTC also has agreed to a settlement with a California-based marketing firm and its owner that, according to the complaint, designed the fake recall notices and worked closely with the dealerships to send them. According to the FTC, the vast majority of the vehicles covered by the notices did not have open recalls. The court orders settling the FTC’s charges bar the defendants from such deceptive conduct in the future.

The dealerships do business as Passport Toyota, Passport Nissan of Alexandria, Virginia, and Passport Nissan of Marlow Heights, Maryland. The marketing company, Temecula Equity Group, LLC, does business as Overflowworks.com.

Se habla español. On October 15, the Bureau released an updated and expanded glossary, prepared in cooperation with other federal agencies, that contains an extensive list of common financial terms translated into Spanish. The glossary is supposed to help financial service providers, financial educators, government agencies, and other organizations effectively communicate with consumers with limited ability to speak, write, or read English. Use of the glossary is not mandated, nor is it guidance or a requirement for any stakeholder. The Bureau uses the glossary to ensure consistency as it translates consumer education materials from English to Spanish. If you use an ad company, make sure to send it a copy of the glossary. If you do ads in-house, you’ll need a copy, as well.

Complain, Complain, Complain! On October 23, the Bureau released its “Complaint Snapshot” a 50-state report, illustrating complaints reported by people in all 50 states and the District of Columbia. The Bureau says it received more complaints from California consumers than from any other state, followed by Florida, Texas, New York, and Georgia. Florida consumers complained most often about credit or consumer reporting, while Texas consumers beefed (sorry, couldn’t resist) the most about debt collection. Wyoming consumers complained the least.

“Small-Dollar” Rules Revisited. On October 26, the Bureau stated that it expects to issue proposed rules in January 2019 that will reconsider the Bureau’s rule regarding Payday, Vehicle Title, and Certain High-Cost Installment Loans, issued by the Bureau in October 2017. The Bureau is planning to revisit only the ability-to-repay provisions of the rule and not the payments provisions, in part because the ability-to-repay provisions “have much greater consequences for both consumers and industry than the payment provisions.” The Bureau will also address the compliance date for the rule, currently August 19, 2019. The Bureau noted that it will make final decisions regarding the scope of the proposal closer to the date of issuance of the proposed rules.

Big Federal Privacy Shindig. The FTC recently announced that it is accepting presentations for its fourth annual PrivacyCon, to be held on June 27, 2019. PrivacyCon addresses the latest research and trends related to consumer privacy and data security. The call for presentations seeks empirical research responding to several questions, including: (1) What new privacy and security issues arise from emerging technologies such as the Internet of Things, artificial intelligence, and virtual reality? (2) What are the greatest threats to consumer privacy today? (3) How can one quantify the costs and benefits to consumers of keeping data about them private? (4) What are the incentives for manufacturers and software developers to implement privacy and security by design in their goods or services and keep security up to date? (5) Is there evidence that the market can provide efficient levels of privacy and data security?

Case of the Month

Odometer Act Claim Against Dealer Failed Where Buyer’s Vehicle Was Exempt from Act’s Disclosure Requirements and Dealer Did Not Waive Exemption. In March 2018, a buyer bought a 2008 GMC Yukon with an odometer reading of 138,616 miles from a dealership. The dealership provided the buyer with two documents showing that the mileage was 138,616, but the bill of sale stated, “Odometer Reading: EXEMPT.”

Almost immediately after buying the vehicle, the buyer had problems and was told by the dealership that the vehicle needed extensive repairs. When the buyer took the vehicle to get a trade-in valuation, he received a title report showing that, in November 2014, the odometer reading was 199,689 and that, in September 2015, the odometer reading was 98,000.

The buyer sued for violations of the federal Odometer Act. The dealership moved to dismiss, arguing that the Act and regulations expressly exempt vehicles manufactured 10 years before the date of sale. Because the buyer bought the vehicle in March 2018, more than 10 years after its January 2008 manufacture date, the dealership was not required to disclose the vehicle’s mileage.

The buyer argued that even though the dealership did not have a legal obligation to disclose the odometer reading, because it voluntarily disclosed the vehicle’s mileage to him and his lender in two documents provided at the sale, the odometer disclosure must be truthful and accurate. The federal trial court disagreed with the buyer. The court distinguished a case in which the seller of an RV, exempt from the odometer disclosure requirements, disclosed the odometer reading to the buyer in an Odometer Disclosure Statement and a Buyer’s Order. In this case, no such statements were made, and, as noted by the court, the bill of sale specifically stated “EXEMPT” next to the odometer reading. Because the vehicle was exempt from the odometer disclosure requirements in the Odometer Act and the dealership did not waive that exemption in documents it provided to the buyer, the court concluded that the Odometer Act claim failed. See Tirtel v. Sunset Auto & Truck, LLC, 2018 U.S. Dist. LEXIS 173222 (M.D. Fla. October 9, 2018).

So, there’s this month’s roundup! Stay legal, and we’ll see you next month.

Here’s our monthly article on legal developments in the auto sales, finance and leasing world. This month, the action involves the Bureau of Consumer Financial Protection and the Federal Trade Commission. As usual, this month’s article features our “Case of the Month.”

Note that this column does not offer legal advice. Always check with your lawyer to learn how what we report might apply to you, or if you have questions.

In our Case of the Month, below, we describe an attempt by a dealer to “piggyback” on the arbitration agreement of a direct lender financing a sale for the dealer’s buyer. The attempt failed. What do your customer-facing documents say about arbitration? Are you certain that you can use them to compel arbitration and stay out of the crosshairs of those class action lawyers? Maybe it’s time for a legal checkup.

Federal Developments

Debt Collectors Slammed. When the FTC goes after debt collectors, finance companies and buy-here, pay-here dealers need to take notice. On September 7, the FTC announced settlements with the operators of a Georgia-based debt collection business. The business, which allegedly used false claims and threats to get people to pay debts – including debts they allegedly did not owe or that the defendants allegedly had no authority to collect. The settlement bans the operators from the debt collection business and from buying or selling debt.

The FTC’s complaint alleged that the defendants’ business model was based on falsely claiming to consumers that they had committed a crime and would be sued, have their wages garnished, or be put in prison if they did not pay purported debts. It further alleged the defendants collected debts consumers had already paid or that the defendants otherwise had no authority to collect, illegally contacted consumers’ employers and other third parties, and failed to provide written notices and disclaimers required by law. The settlement prohibits the defendants from misrepresentations regarding any financial products and services, and from profiting from or failing to properly dispose of customers’ personal information collected as part of the challenged practices. Each order imposes a $3,462,664 judgment that will be partly suspended, due to the defendants’ inability to pay, when they have surrendered certain assets. In each case, the full judgment becomes due immediately if the defendants are found to have misrepresented their financial condition.

Credit Freeze Notice Changes. On September 12, the Bureau issued an interim final rule, effective September 21, 2018, updating the model Summary of Consumer Identity Theft Rights and model Summary of Consumer Rights provided in Appendices I and K to Regulation V, which implements the Fair Credit Reporting Act. This interim final rule is driven by the FCRA’s recent amendment by the Economic Growth, Regulatory Relief, and Consumer Protection Act. These legislative changes add a new notice requirement to any summary of rights required by section 609 of the FCRA. The notice language, provided in S. 2155, explains new consumer rights to a national credit freeze with the nationwide consumer reporting agencies and an initial fraud alert for at least one year. The Bureau’s rule begins the new notice with a header explaining that the security freeze right is available specifically through nationwide consumer reporting agencies, even though the notice must be provided by all consumer reporting agencies. The rule also updates the contact information provided in the model Summary of Consumer Rights in Appendix K. To mitigate the impact of these changes on users of the existing model forms, the interim final rule also provides that the Bureau will regard the use of the current model forms published in Appendices I and K, to constitute compliance with the FCRA provisions requiring such forms, so long as a separate page that contains the additional required information is provided in the same transmittal. Comments are due by November 19, 2018.

Credit Invisible Consumers? On September 18, the Bureau released its third “Data Point” report on consumers for whom the nationwide consumer reporting agencies have no credit file (i.e., “credit invisible”) and consumers for whom the CRAs have only limited credit histories. The first report – Credit Invisibles – estimated the number and demographic characteristics of consumers who were credit invisible or had an unscorable credit record. The second report – Becoming Credit Visible – explored the ways in which consumers establish credit records. In this new report – The Geography of Credit Invisibility – the Bureau examined geographic patterns in the incidence of credit invisibility to assess the extent to which where one resides is correlated with one’s likelihood of remaining credit invisible.

Pssst! Wanna Buy a Fake ID? On September 18, the FTC announced that the operators of websites that sold fake documents used to facilitate identity theft and other frauds have agreed to permanently shut down their businesses as part of separate settlements with the Federal Trade Commission. In separate cases filed by the FTC, the Commission alleged that individuals and their affiliated companies operated websites that sold customers a variety of fake financial and other documents – such as pay stubs, income tax forms, and medical statements – which can be used to facilitate identity theft, tax fraud, and other crimes.

Case of the Month

Alfredo Fuentes signed a purchase agreement with TMCSF, Inc., d/b/a Riverside Harley-Davidson, to buy a new motorcycle. The purchase agreement did not include an arbitration provision.

At the same time, Fuentes signed a security agreement with Eaglemark Savings Bank to finance the purchase. The security agreement included an arbitration provision that governed all claims “between [Fuentes] … and ESB and/or any of ESB’s successors, assigns, parents, subsidiaries, or affiliates and/or any employees, officers, directors, [or] agents.” “ESB” was defined as Eaglemark and its successors and assigns.

Fuentes brought a class action against TMCSF, alleging that it made various misrepresentations in connection with the advertising and sale of its motorcycles. TMCSF moved to compel arbitration pursuant to the arbitration provision in the security agreement.

The trial court denied the motion, concluding that TMCSF was not a party to the security agreement (it was solely between Fuentes and Eaglemark) and the arbitration provision did not state that it governed claims between Fuentes and TMCSF. TMCSF appealed.

The Court of Appeal of California affirmed the trial court’s decision. The appellate court held that TMCSF was not entitled to compel arbitration because: it was not a party to the security agreement containing the arbitration provision (and not a non-party expressly specified as able to invoke the arbitration provision); it was not acting in the capacity of an agent of a party to the arbitration provision; and it was not a third-party beneficiary of the arbitration provision. The appellate court also agreed with the trial court that Fuentes was not equitably estopped from denying the application of the arbitration provision to his claims.

Here’s our monthly article on legal developments in the auto sales, finance and lease world. This month, the action involves the Bureau, the Office of the Comptroller of the Currency (OCC), the Federal Trade Commission (FTC), the U.S. Senate and the New York Office of the Attorney General. As usual, this month’s article features our “Case of the Month.”

Note that this column does not offer legal advice. Always check with your lawyer to learn how what we report might apply to you, or if you have questions.

If you offer a warranty with the cars you sell, pay close attention to the FTC warning on warranties described immediately below. If your warranty contains provisions like the ones the FTC objects to, it’s time to sit down with your lawyer for a rewrite.

Federal Developments

Warning to Warrantors. On April 10, the FTC announced that its staff sent warning letters to six major companies that market and sell cars, cellular devices, and video gaming systems in the United States. The letters reportedly warn that FTC staff has concerns about the companies’ statements requiring consumers to use specified parts or service providers to keep their warranties intact. Unless warrantors provide the parts or services for free or receive a waiver from the FTC, such statements are generally prohibited by the Magnuson-Moss Warranty Act. Similarly, those statements may be deceptive under the FTC Act. Here are some examples of provisions the FTC staff questioned: (1) The use of [company name] parts is required to keep your … manufacturer’s warranties and any extended warranties intact; (2) This warranty shall not apply if this product … is used with products not sold or licensed by [company name]; and (3) This warranty does not apply if this product … has had the warranty seal on the [product] altered, defaced, or removed. The FTC staff requested that each company review promotional and warranty materials to ensure the materials do not state or imply that warranty coverage is conditioned on the use of specific parts or services. In addition, the FTC staff requested each company to revise its practices to comply with the law. The letters state that FTC staff will review the companies’ websites after 30 days and that failure to correct any potential violations may result in law enforcement action. The press release about the action can be found at https://www.ftc.gov/news-events/press-releases/2018/04/ftc-staff-warns-companies-it-illegal-condition-warranty-coverage.

Senate Rejects “Guidance.” On April 18, the U.S. Senate passed a joint resolution using its powers under the Congressional Review Act to vacate the Bureau’s March 2013 guidance for indirect auto lenders on compliance with the Equal Credit Opportunity Act and Regulation B. The joint resolution passed with a 51-47 vote. In December 2017, the Government Accountability Office concluded that the CFPB’s guidance was, at the time of its issuance, a rule subject to the Congressional Review Act. The joint resolution now heads to the House for a vote, where it is expected to pass. The president is also expected to sign the joint resolution.

Did You Say a Billion Dollar Fine? On April 20, the Bureau announced a settlement with Wells Fargo, N.A. in a coordinated action with the OCC. The Bureau alleged that Wells Fargo’s policies and practices regarding force-placed collateral protection insurance on vehicles that are collateral for loans (probably retail installment contracts) it originated or acquired were unfair under the Consumer Financial Protection Act (CFPA). In addition, the Bureau alleged that certain fees Wells Fargo charged mortgage loan borrowers for extensions on interest rate locks were unfair under the CFPA. Specifically, Wells Fargo allegedly force-placed collateral protection insurance on consumers’ vehicles that were already covered by insurance policies voluntarily obtained by the consumers. In instances where the company appropriately force-placed insurance on consumers’ vehicles, the company improperly maintained the force-placed insurance policies on the consumers’ accounts even after the consumers had obtained adequate insurance on their vehicles and provided proof of insurance. Wells Fargo also allegedly failed to provide sufficient refunds of fees associated with the improper forced-placement of collateral protection insurance. The consent order requires the company to undertake certain activities related to its risk and compliance management, and the company has begun voluntarily providing remediation to consumers to address deficiencies cited in the consent order. The Bureau assessed a $1 billion penalty against Wells Fargo and credited the $500 million penalty collected by the OCC toward the satisfaction of its fine. Information about the action can be found at https://www.consumerfinance.gov/policy-compliance/enforcement/actions/wells-fargo-bank-na-2018/.
So, there’s this month’s report. See you next month!

Case of the Month

Dealership’s Fraudulent Misrepresentations Regarding Condition of Used Vehicle Invalidated Implied Warranty Disclaimer: During a test drive of a truck with a salvage title, the potential buyer noticed that the check-engine light was on and the truck smoked. The salesperson explained that the truck smoked because it was a diesel and that the check-engine light was due to a faulty oxygen sensor that would be easy to fix.

The buyer bought the truck “as is” and received a third-party vehicle protection plan at no cost. Within days of purchase, the truck lacked power and continued to smoke. The dealership refused to diagnose or repair the truck. The buyer had the truck inspected and was advised that the engine needed replacing.

The buyer sued the dealership, alleging fraud and breach of the implied warranty of merchantability and seeking attorneys’ fees under the Magnuson-Moss Warranty Act. The trial court granted judgment for the buyer, awarding her $14,366 in damages based on the price she paid for the truck and the cost of the inspection, plus attorneys’ fees and costs. The dealership appealed.

The appellate court affirmed, as did the Supreme Court of Minnesota in this decision. The dealership argued that the “as is” disclaimer barred the buyer’s claim. The state high court disagreed, finding that, under Minnesota law, a warranty disclaimer is effective “unless the circumstances indicate otherwise.” The high court concluded “that [the dealership’s] fraudulent statements about the fitness of the truck for the purpose for which a truck is purchased are a circumstance that make the ‘as is’ disclaimers of implied warranties in the purchase documents ineffective.” See Sorchaga v. Ride Auto, LLC, 2018 Minn. LEXIS 111 (Minn. March 21, 2018).

So, there’s this month’s roundup! Stay legal, and we’ll see you next month.

Here’s our monthly article on legal developments in the auto sales, finance and lease world. This month, we’re reporting on activities of the Consumer Financial Protection Bureau, the Department of Justice and the courts. As usual, this month’s article features our “Case of the Month.”

Note that this column does not offer legal advice. Always check with your lawyer to learn how what we report might apply to you, or if you have questions.

It’s that time of year again – dealer and finance company associations are gearing up for their spring conferences. If you plan to attend one or more of these in search of ways to improve your operations, remember as you listen to the various presenters that state laws governing what dealers can and cannot do vary. What’s permitted in State A might be a violation of the law in State B. To put it another way, what might win an award in a 20-group’s “Best Ideas” contest might be legal in State A but might constitute a felony in State B. So if you pick up a great idea at a conference, make sure that your lawyer blesses it for your state before you implement it. And don’t forget to visit us at the CounselorLibrary.com booth and listen in on a few compliance sessions.

Federal Developments

Servicemembers and Leasing. On February 22, the Department of Justice announced that it settled a case against a captive auto finance company, resolving allegations that the company violated the Servicemembers Civil Relief Act by failing to refund certain up-front lease amounts to servicemembers who lawfully terminated their vehicle leases early.

This is the first DOJ case addressing a vehicle lessor’s SCRA obligation to refund certain types of lease payments. The SCRA allows servicemembers to end vehicle leases early after entering military service or receiving qualifying military orders for a permanent change of station or to deploy.

When servicemembers lawfully terminate vehicle leases, the SCRA requires that they be refunded all lease amounts paid in advance. At issue in this case is which categories of fees are paid “in advance” that must be refunded under the SCRA.

The DOJ alleged that part of the lease’s capitalized cost reduction (“CCR”) is subject to a pro rata refund. The CCR is an amount the consumer pays to the dealer at lease signing that reduces the amount of lease payments. The CCR could come from a consumer’s cash payment, trade-in equity, or rebate or other credit provided by the manufacturer, lessor, or a third party.

Lessors have often contended that none of the CCR is an amount paid in advance on the lease, but rather the CCR acts as a form of down payment, retained by the dealer and not paid to or received by the lease assignee.

Without admitting factual allegations or statements of law, the finance company agreed to refund over $2 million to 492 servicemembers and their co-lessees. In addition, the company will pay $60,788 to the U.S. Treasury.

What’s the Plan? On February 12, the CFPB released its 5-year strategic plan. The plan sets forth the CFPB’s mission to regulate the offering and provision of consumer financial products and services under the federal consumer financial laws and to educate and empower consumers to make better-informed financial decisions. CFPB’s strategic goals include: (1) to ensure that all consumers have access to markets for consumer financial products and services; (2) to implement and enforce the law consistently to ensure that markets for consumer financial products and services are fair, transparent, and competitive; and (3) to foster operational excellence through efficient and effective processes, governance, and security of resources and information. Acting Director Mulvaney stated: “If there is one way to summarize the strategic changes occurring at the Bureau, it is this: we have committed to fulfill the Bureau’s statutory responsibilities, but go no further.”

New CFPB Faces. On February 6, Mulvaney named Kirsten Sutton Mork as the CFPB’s new chief of staff. Mork has been staff director of the House Financial Services Committee since early 2017. In addition, on January 30, Mulvaney advised CFPB staff that the Office of Fair Lending and Equal Opportunity will be transferred to the Director’s Office, as part of the Office of Equal Opportunity and Fairness. The Office of Fair Lending will continue to focus on advocacy, coordination, and education, but will no longer have enforcement responsibility.

More Information, Please! The CFPB recently issued five Requests for Information as part of Mulvaney’s call for evidence to ensure the CFPB is fulfilling its proper and appropriate functions to best protect consumers. These RFIs invite the public to submit feedback and suggest ways to improve outcomes for both consumers and covered entities. We reported last month on the first of these, dealing with the CFPB’s civil investigative demand process. Here are four more CFPB RFIs.

The CFPB’s second RFI seeks public comment on whether and how the CFPB might improve its administrative adjudication processes, including its Rules of Practice for Adjudication Proceedings, which pertain to the general conduct of administrative adjudication proceedings; the initiation of such proceedings and prehearing rules; hearings; decisions and appeals; and temporary cease-and-desist proceedings. Comments are due by April 6, 2018.

The CFPB’s third RFI seeks information to assess the overall efficiency and effectiveness of its processes related to the enforcement of federal consumer financial laws. Comments are due by April 13, 2018.

The fourth RFI seeks information to assess the overall efficiency and effectiveness of the CFPB’s supervision program. Comments are due by May 21, 2018.

Finally, the CFPB’s fifth RFI on external engagements seeks information on ways to engage the public and receive feedback on the agency’s work. Comment deadlines for the fifth RFI have not yet been published.

No ACE up Their Sleeves? On January 25, the Office of the Associate Attorney General at the U.S. Department of Justice issued a memorandum to its litigators announcing its policy regarding the use of agencies’ guidance documents in affirmative civil enforcement (“ACE”) cases. The AAG states: “Guidance documents cannot create binding requirements that do not already exist by statute or regulation. Accordingly, effective immediately for ACE cases, the [DOJ] may not use its enforcement authority to effectively convert agency guidance documents into binding rules. Likewise, [DOJ] litigators may not use noncompliance with guidance documents as a basis for proving violations of applicable law in ACE cases. The [DOJ] may continue to use agency guidance documents for proper purposes in such cases. For instance, some guidance documents simply explain or paraphrase legal mandates from existing statutes or regulations, and the [DOJ] may use evidence that a party read such a guidance document to help prove that the party had the requisite knowledge of the mandate. However, the [DOJ] should not treat a party’s noncompliance with an agency guidance document as presumptively or conclusively establishing that the party violated the applicable statute or regulation.”

Case of the Month

Some lessons seem to require learning over and over again. The lesson this month is: Don’t employ multiple arbitration agreements in a single transaction. Here’s what happened in a recent case.

Chuck Willis filed an adversary proceeding in his Chapter 7 bankruptcy case against Tower Loan of Mississippi, LLC. Willis alleged that Tower Loan violated the Truth in Lending Act and Regulation Z by providing misleading and incorrect disclosures in his installment loan agreement with regard to, among other things, the credit insurance he bought in connection with the loan.

Tower Loan moved to compel arbitration under an arbitration clause in the loan agreement. The agreement contained an arbitration disclaimer that said: “By signing below and obtaining this loan, borrower agrees to the Arbitration Agreement on the additional pages of this agreement. You should read it carefully before you sign below. Important provisions, including our privacy policy, are contained on additional pages and incorporated herein.” The reverse side of the loan agreement contained the Arbitration Agreement.

At the hearing on the motion, the parties presented to the court, for the first time, an Endorsement to Require Binding Arbitration, which represented the “additional pages” referenced in the arbitration disclaimer. Willis argued that because the Arbitration Agreement and the Endorsement contained different and conflicting terms regarding the number of arbitrators, how the arbitrators will be selected, the notice required to arbitrate, the location of the arbitration, who pays the cost of arbitration, who would be entitled to attorneys’ fees and when, and when arbitration proceedings need not be initiated, there was no meeting of the minds with respect to arbitration.

The court denied Tower Loan’s motion to compel arbitration. The court first addressed Tower Loan’s argument that the Arbitration Agreement and the Endorsement governed different issues and/or parties, and the dispute in this case was governed by the Arbitration Agreement. The court disagreed, noting that both the Arbitration Agreement and the Endorsement governed claims against Tower Loan arising under the loan agreement, including any insurance purchased in connection with the loan.

The court went on to address the impact of the inconsistent and conflicting provisions and determined that, under Tenth Circuit precedent, the terms of the arbitration agreements were not “sufficiently definite” as required by Mississippi law, which governed the loan agreement. Therefore, the court concluded that there was no “meeting of the minds” as to how to arbitrate claims under the arbitration agreements and, thus, no agreement to arbitrate.

Here’s our monthly article on legal developments in the auto sales, finance and lease world. This month, we’re reporting on activities of the Consumer Financial Protection Bureau and the courts. As usual, this month’s article features our “Case of the Month.”

Note that this column does not offer legal advice. Always check with your lawyer to learn how what we report might apply to you, or if you have questions.

Advertising and selling cars online has become commonplace. It is also common that sometimes the buyers and dealers in these online transactions are located in different states. What is less common is that a dealer, before undertaking these sales, has had the advertising and sales process reviewed by counsel. The “Case of the Month,” below, involves a Tennessee dealer who was sued in Alabama, after an Alabama buyer bought a car from the Tennessee seller. The dealer had the Alabama lawsuit dismissed, but gave the buyers permission to transfer the case to the appropriate jurisdiction. The case illustrates the perils of online transactions. Have you had your online advertising and sales processes reviewed by counsel?

Federal Developments

Struggle for Control of the CFPB. On January 10, 2018, the U.S. District Court for the District of Columbia denied CFPB Deputy Director Leandra English’s request for a preliminary injunction to block President Trump’s appointment of Mick Mulvaney as acting CFPB director. The court ruled that English is not likely to succeed on the merits of her claim that, by operation of the Dodd-Frank Act, she is the rightful acting CFPB director. English was also unable to show that a denial of the injunction would cause her or the agency to suffer irreparable harm.

As background: On November 24, 2017, Richard Cordray appointed English, his chief of staff, as deputy director and then resigned. Pursuant to a section of the Dodd-Frank Act that says the deputy director serves as the acting director when the director is unavailable, English claimed the title of acting director upon Cordray’s resignation. A few hours later, President Trump – using his authority under the Federal Vacancies Act to fill vacant positions that require Senate confirmation with another appointee who has already been confirmed by the Senate for another position – appointed Mulvaney, the director of the Office of Management and Budget, as the CFPB’s acting director until a permanent director is confirmed by the Senate, setting up a conflict with Cordray’s appointee.

English sued Mulvaney and the president, asking the court to restrain Mulvaney from heading the CFPB until a permanent director can be nominated and confirmed. In late November, the judge denied English’s initial request for a temporary restraining order.

Kiss the Payday Rule Goodbye? On January 16, 2018, the CFPB issued the following statement on its Payday, Vehicle Title, and Certain High-Cost Installment Loans final rule (“Payday Rule”): “January 16, 2018, is the effective date of the [Payday Rule]. The Bureau intends to engage in a rulemaking process so that the Bureau may reconsider the Payday Rule. Although most provisions of the Payday Rule do not require compliance until August 19, 2019, the effective date marks codification of the Payday Rule in the Code of Federal Regulations. [The] effective date also establishes April 16, 2018, as the deadline to submit an application for preliminary approval to become a registered information system (“RIS”) under the Payday Rule. However, the Bureau may waive this deadline pursuant to 12 C.F.R. 1041.11(c)(3)(iii). Recognizing that this preliminary application deadline might cause some entities to engage in work in preparing an application to become a RIS, the Bureau will entertain waiver requests from any potential applicant.”

A New Boss, With New Marching Orders. On January 23, 2018, the CFPB’s Acting Director Mulvaney wrote a memo to staff discussing how, under new leadership, the CFPB is shifting its governing philosophy in regard to carrying out its mandate under the Dodd-Frank Act. While Mulvaney affirmed the need to protect consumers and stated that the CFPB will enforce consumer financial protection laws vigorously, he noted that the CFPB will no longer “push the envelope” of the law in order to “send a message” to regulated entities. Mulvaney rejected his predecessor’s “good guy” versus “bad guy” language and promised to execute the CFPB’s mandate “with humility and prudence.”

Mulvaney indicated that the CFPB will be conducting a review of all activities in which it is engaged. More specifically, Mulvaney stated that the CFPB will be: (1) bringing enforcement actions where “quantifiable and unavoidable harm to the consumer” exists; (2) focusing on formal rulemaking instead of “regulation by enforcement;” and (3) prioritizing areas of focus based on consumer complaints (noting, specifically, that nearly a third of CY 2016 complaints related to debt collection, compared to 0.9% for prepaid cards and 2% for payday lending).

Finally, Mulvaney stated that the CFPB will engage in quantitative analysis to “consider the potential costs and benefits to consumers and covered persons” when determining whether to intervene in given situations.

Information, Please. On January 24, 2018, the CFPB issued a “Request for Information,” seeking feedback on all aspects of the CFPB’s civil investigative demand process to determine if any changes are necessary. The CFPB issues CIDs to entities and persons whom the CFPB has reason to believe have information relevant to a violation of the laws the CFPB enforces.

Recipients of a CID are required to produce the requested information to the Bureau, which uses that information to further its investigations of potential violations of federal consumer financial laws. Through the RFI, the CFPB is seeking information on how processes related to CIDs may be updated, streamlined, or revised to better achieve the CFPB’s statutory and regulatory objectives, while minimizing burdens on recipients, and how to align the CFPB’s CID processes with those of other agencies.

The CFPB believes that entities that have received one or more CID, lawyers who represent these entities, and members of the public are likely to have useful information and perspectives that will help inform the CFPB’s review of its CID processes. Comments are due by March 27, 2018.

The RFI on CIDs comes on the heels of the CFPB’s January 17, 2018, announcement that it is issuing a call for evidence to ensure the CFPB is fulfilling its proper and appropriate functions to best protect consumers. The CFPB will be publishing in the Federal Register a series of similar RFIs, seeking comment on enforcement, supervision, rulemaking, market monitoring, and education activities. These RFIs will provide an opportunity for the public to submit feedback and suggest ways to improve outcomes for both consumers and covered entities.

Ashley and Derek Hand sued Wholesale Auto Shop, LLC, a Tennessee corporation with its principal place of business in Tennessee, for selling them a Jeep Wrangler with an odometer reading of 66,692 but with actual mileage of 252,603 miles. The Hands claimed that Wholesale Auto violated, among other laws, the Motor Vehicle Information and Cost Savings Act and the Alabama Deceptive Trade Practices Act.

After Wholesale Auto failed to answer the complaint, the Hands moved for a default judgment. The federal trial court asked the Hands to submit a supplemental brief addressing the issue of whether the court had personal jurisdiction over Wholesale Auto. After the Hands submitted the brief, the court denied the Hands’ motion for lack of personal jurisdiction, but granted them leave to move to transfer the case to an appropriate jurisdiction.

Alabama’s long-arm statute permits the exercise of personal jurisdiction if constitutionally permissible, and the U.S. Constitution requires a defendant to have sufficient minimum contacts with the forum state in order to satisfy due process. The court found that Wholesale Auto lacked sufficient minimum contacts with the state of Alabama. The Hands viewed Wholesale Auto’s advertisement for the Jeep on autotrader.com, the parties communicated by phone between Alabama and Tennessee after the Hands contacted Wholesale Auto about the Jeep, and the Hands traveled to Tennessee to buy the vehicle.

The court concluded that the fact that Wholesale Auto called the Hands twice in Alabama and allegedly made fraudulent statements during those calls was insufficient to establish personal jurisdiction over Wholesale Auto because the Hands initiated the contact, consummated the transaction in Tennessee, and were only injured in Alabama by bringing the car to that state.